State Board of Assessors v. Comptoir National D’escompte, 191 U.S. 388 (1903)
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State Board of Assessors v. Comptoir National D’Escompte
No. 167
Argued October 28-29, 1903
Decided November 30, 1903
191 U.S. 388
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE EASTERN DISTRICT OF LOUISIANA
Syllabus
There is no inhibition in the federal Constitution against the right of a state to tax property in the shape of credits where the same are evidenced by notes or obligations held within the state, in the hands of an agent of the owner for the purpose of collection or renewal, with a view to new loans and carrying on such transactions as a permanent business.
A foreign corporation, whose business in Louisiana was in the hands of an agent, furnished to customers sums of money and took from them collateral security; for reasons satisfactory to the parties, instead of taking the ordinary evidence of indebtedness, the customers drew checks, never intended to be paid in the ordinary way, but intended by the parties to be held as evidence of the amount of money actually loaned; these loans could be satisfied by partial payments from time to time, interest being charged upon the outstanding amounts, and if not paid at maturity, the collateral was subject to sale; when paid, the money might be again loaned by the agent to other parties or remitted to the home office, and the business was large and continuing in its character.
Held that as such checks were given for the purpose of evidencing interest-bearing debts, they were the evidence of credit for money loaned, localized in Louisiana, protected by its laws, and properly taxable there under the provisions of the tax law of 1898 of Louisiana, which has already been sustained as constitutional by this Court. New Orleans v. Stempel, 175 U.S. 309.
The Comptoir Nationale d’Escompte de Paris, a corporation organized under the laws of the Republic of France, filed its bill in the circuit court of the United States for the Eastern District of Louisiana seeking to enjoin collection of certain taxes and to cancel the assessment thereof. These taxes were undertaken to be collected under an assessment upon office furniture, $1,000; money in possession, $20,000; "money loaned on interest, all credits, and all bills receivable for money loaned on interest or advanced for goods sold, $175,000." There is no contest as to the taxes assessed upon the furniture or money in possession, but it is sought to enjoin the collection of the tax assessed upon the $175,000, which for the year 1891 is the sum of $4,550.
Complainant avers that it has no money loaned on interest, credits or bills receivable for money loaned on interest or advanced, or for goods sold within the State of Louisiana, subject to taxation; that its credits in said state are debts due to it, of which it has no legal evidence of indebtedness within the state, and that these debts have no legal situs in Louisiana, and can only be taxed at the domicil of the Comptoir in Paris. That the taxes assessed were in violation of the Constitution and jurisprudence of Louisiana, and were also in violation of the Fourteenth Amendment to the federal Constitution, inasmuch as the action complained of denied to the complainant the equal protection of the laws, and deprived it of its property without due process of law.
The respondent took issue upon these allegations, and avers that complainant has credits within the state amenable to the taxing power, and the assessment upon the $175,000 was legal and valid.
Testimony was taken by a special examiner under an order of court, and the case partially heard, and was then referred to a master, who made separate findings of fact and conclusions of law.
From the testimony adduced and the findings of the fact of the master, it appears that the complainant has had an average of $20,000 on deposit in money in the banks of New Orleans, upon which it has paid taxes annually. It has also paid an annual license tax upon business done. The assessment upon the $175,000 arises from moneys advanced by the local agent of the Comptoir in New Orleans upon transactions wherein customers draw checks, in the ordinary form, upon the Comptoir, and at the same time deposit collateral sufficient to secure the amount of money advanced, accompanying the check and collateral with a power of attorney, reciting, among other things, that, whenever the customer shall become indebted to the Comptoir for money lent or for any overdraft upon any check, the Comptoir is to have a lien upon the securities deposited, and upon failure to reimburse any overdraft or to pay any indebtedness when due, the Comptoir to have the right to sell the collateral, and apply the proceeds upon such liabilities.
The agent of the Comptoir testified that, when the money was paid, it was remitted back to Paris by an exchange transaction. It also appeared that the agent had authority to make loans as above without consulting the office in Paris, and that the transactions were continuing and large, and amounting to more than a million of dollars a year.
The Comptoir also did a large business in the sale of exchange directly to customers, and relied largely for its gain upon the profits in exchange transactions between this country and Europe. The collateral deposited as security by customers is kept in New Orleans, and is not remitted to the home office in Paris. The money needed for the transactions of the Comptoir arises from foreign exchange drawn from London, Paris, Berlin, etc. Speaking of the transactions from which the present controversy arises, the agent testifies:
Q. Did you charge interest on your overdrafts?
A. Yes, sir.
Q. Well, what evidence of indebtedness, besides the account on your books with your customers, have you that these people owe you anything at all?
A. We have a regular settlement which we make every month.
Q. When you put $50,000, we will say, to the credit of one of your customers on your books, does he give you any receipt for your money previous to your crediting him with that, on your books?
A. I do not credit him; I pay him.
Q. You pay him ___
A. Yes, sir; I pay him the money.
Q. What evidence have you that he owes you anything?
A. I have got a check from him; he is overdrawn on my books.
Q. For the amount you have loaned him?
A. Yes, sir.
By Mr. Zacharie:
Q. Suppose a man comes to you and says, here, I have got certain securities, certain warehouse receipts or bills of lading, I want to borrow $50,000. You say to him, we will let you have it. Now he deposits with you these bills of lading or these warehouse receipts or these bonds, whatever you choose to accept as security for the loan. Do you give him a receipt for those?
A. No. I am going to explain the business. Well, a client comes to me and says to me, and says I want $50,000, and I propose to give you such collateral, bills of lading for cotton or for grain or warehouse receipts or bonded warehouse receipts for cotton or for cake or cotton seed meal -- any kind of those products. If I approve, ready to do the business, I say, Yes. Well, there are two ways of letting him . . . that money; very often I open a credit in his favor on the Comptoir National d’Escompte de Paris in Paris or in London, then he draws against that credit -- I mean to say, he sells his draft to the Comptoir to anybody he pleases, either in New Orleans or New York, if the loan is for a short period. Instead of asking him to draw, I will draw it myself and hand him the money.
Q. You sell your own exchange?
A. Then he is overdrawn on my books, and to show that he is overdrawn, I tell him, you draw a check on me, and he gives me that check. And then I make him sign a general letter of hypothecation (which will be shown to the attorney). Outside of that, we have nothing of importance -- I don’t see anything else.
Q. These securities and checks remain in your office here in New Orleans?
A. Yes, sir. The checks are cash vouchers for the cashier, who has them to show that he paid the money.
Q. Suppose that the amount drawn by him does not come up to the amount of the value of this hypothecation, this hypothecated stuff, what is done there at the close of the transaction?
A. The general letter of hypothecation does not state any amount. It states simply it is a power of attorney.
Q. I say, what is done when the transaction is concluded? He has got all of the money that you agreed to give him, and the collaterals in your hands are worth more than that. What do you do there?
A. We have a margin. You mean to say if the collateral is worth more than the money we give him?
Q. Yes.
A. Then we have a margin; then we are protected if there is a fall in the price of the securities he gives us.
By Mr. Dupre:
Q. Does he take back the check he has given.
A. No, sir.
Q. When the transaction is concluded, what becomes of that check that he has drawn against your bank?
A. The check is a cash voucher; it stays among the cash vouchers of the day on which it is paid and remains perpetually in the custody of the Comptoir National d’Escompte de Paris for the cashier to show that he has paid that check.
Q. In other words, it is not returned to the man when he pays his debt?
A. Because we keep an account current which varies each day.
Q. The agent of the Comptoir National d’Escompte de Paris in New Orleans has full authority to act for the Comptoir National d’Escompte de Paris in this city?
A. Yes, sir.
Q. He does not have to confer by cable or otherwise with his principals in Paris or France as to whether he will make one loan or another, a particular loan?
A. He has authority to loan certain amounts, or make certain transactions by exchange according to instructions he has from the other side.
Q. I mean, if I went in there, he would not have to cable to ask about me?
A. No, sir.
Q. When in answer to the fifth interrogatory you say the money was obtained by drawing foreign exchange on Europe, you mean to say that the cash which you lent in the City of New Orleans was obtained by drawing this foreign exchange on Europe and getting it cashed here in the banks?
A. Getting it in New York.
Q. And the cash was forwarded to you from New York?
A. Yes, sir.
Q. And that was the money that you lent?
A. Yes, sir.
Q. Do you know, or can you state approximately, the amount of loans that you made during the year 1900?
A. No, I cannot.
Q. About?
A. Well, I made so many loans, you know, for a short period, and I can’t state the total amount; it would be too far away, the exact amount.
Q. Was it over a million dollars?
A. Taken it altogether, yes.
Q. How much over a million?
A. I do not know.
Q. Was it ever two millions?
A. No, sir.
Q. As I understand you, a great many of these loans were for short periods, so that you turned the money over and over again during the year?
A. Yes, sir.
The master summarized his conclusion of fact as follows:
To sum up the facts: it is found that the complainant has paid its annual license tax on its exchange business, as provided by law, and has paid, or offered to pay, its annual tax on the average amount of $20,000 of money on deposit in Louisiana, and that the assessment complained of, of $175,000 for the year 1901, is on the credits accruing to it from the advances made by it in New Orleans, through its agents here, on bills of lading and similar documents by way of collateral. These credits were either in the form of credits on Paris or London, giving the right to the Louisiana debtors to draw on the complainant in Paris or London, or they were transactions at short time by which the debtors were overdrawn on the books. In both cases, they amounted to overdrafts secured by collateral. In the previous year, which is not now in question, the complainant took nonnegotiable notes to represent these credits, and these were considered in the case in the 52 Annual, which will be hereafter referred to again; but in the instant case, for the year 1901, the question is of these overdrafts.